According to Yahoo News, Southeast Asia's longer-dated bonds have been a successful trade as the region's yield curve flattened, and there are indications that this trend will persist. Hopes for a US policy shift may provide support to long-end notes, while shorter maturities are affected by expectations that regional interest rates will remain high. The gap between Indonesia's two- and 10-year yields is at a multi-year low, while the spreads for Malaysia and Thailand have also narrowed.
Global notes have recovered after experiencing a three-month loss, as traders increase bets that the Federal Reserve may begin cutting interest rates next year. Recent data suggests that US inflation and the job market are slowing down, leading investors to consider whether it's time to start purchasing bonds again. The recent flattening in the region has been driven by the Treasury rally on hopes of a peak in the Fed cycle, which has also resulted in the unwinding of bearish positions on duration, according to Abhay Gupta, strategist at Bank of America in Singapore.
The flattening trend is expected to continue this quarter as longer-dated yields decline due to easing price pressures. Thailand reported its first deflationary print in almost two years last month, while Indonesian inflation has returned to the central bank's 2%-4% target. In Malaysia, consumer prices increased at the slowest rate since March 2021 in September. As a result, policymakers are likely to hold off on further rate hikes. A majority of analysts in a Bloomberg survey predict that Bank Indonesia will maintain its current stance at a review on Thursday, while Bloomberg Economics expects the Bank of Thailand to hold steady at a November 29 meeting.
